TMI Blog1993 (1) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... perties belonging to the dissolved firms. The award, therefore, did not require registration under section 17(1) of the Registration Act. Appeal allowed. - C.A. 1749 OF 1992 - - - Dated:- 11-1-1993 - Judge(s) : K. RAMASWAMY., A. M. AHMADI., M. M. PUNCHHI JUDGMENT The judgment of the court was delivered by A. M. AHMADI J.-- The four appellants and respondents Nos. 1 and 2 are brothers. They were carrying on business in partnership in the name and style of Messrs. Sivalinga Nadar and Brothers and S. V. S. Oil Mills, both partnerships being registered under the Partnership Act, 1932. Most of the properties were acquired by the firm of Sivalinga Nadar and Brothers. The firm of Messrs. S. V. S. Oil Mills merely had leasehold rights in the parcel of land belonging to the first-named firm on which the superstructure of the oil mill stood. Both the partnerships were of fixed durations. Disputes arose between the six brothers in regard to the business carried on in partnership in the aforesaid two names. For the resolution of these disputes the six brothers entered into an arbitration agreement dated October 8, 1981, which was as under : "We are carrying on business in pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not concerned in these appeals. Paragraph 29 refers to the business carried on by the relatives of the disputants in the names of Sri Brahmasakthi Agency and Srimagal Finance Corporation. The arbitrators have recognised the fact that even though the said business is not carried on by the disputants it would be desirable to dissolve the said firms also, with effect from July 24, 1984, in the larger interest of peace and amity among the disputants and their relatives. Paragraph 30 refers to the properties standing in the name of the father of the six disputants, i.e., partners of the two firms in question. It is stated that although initially the disputants had shown an inclination to refer the dispute concerning the properties owned by their father to the arbitration of the three arbitrators, but when it was noticed that the deceased had left a will disposing of the properties the need for resolution of the dispute through arbitration did not survive. In paragraph 31, the arbitrators have determined their fees and have directed the disputants to bear them equally. At the end of the award, the properties falling to the share of the disputants have been set out in detail in Schedules ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be affixed and, therefore, I feel there could be no impediment to the award being made a rule of the court and a decree being passed in terms of the award as contended by the learned counsel for the respondents." The learned single judge thereafter proceeded to make the final order in paragraph 78 of the judgment in the following terms : "Thus on a careful consideration of the materials available and the contentions of either side it has to be decided that Application No. 3505 of 1984 in Original Petition No. 230 of 1984 filed by the petitioners therein praying for a decree in terms of the arbitration award dated July 9, 1984, has to be allowed and Original Petitions Nos. 247 and 275 of 1984 and the applications filed in those two petitions, i.e., Applications Nos. 3474, 3476, 5030, 5031, 5032, 2827, 2828, 3773, 3762, 3874 of 1984, and 4886 and 4887 of 1985, are dismissed. The petitioner in Original Petition No. 230 of 1984 and the applicants in Application No. 3505 of 1984 are directed to take steps for getting the award registered. The parties in all these proceedings are directed to bear their own costs." It may here be mentioned that after the making of the award one o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set aside the impugned judgment of the learned single judge and held that as the award was not registered, it could not be made the rule of the court. It made no order as to costs. It is against this decision of the Division Bench of the High Court that the present appeals by special leave (we also grant special leave in S. L. P. No. 9408 of 1992) have been filed. Before we examine the contention based on section 17 of the Registration Act, we may notice a few relevant provisions bearing on the interest of partners in partnership property as found in the Partnership Act, 1932. Section 4 defines partnership as a relationship between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Section 14 provides that subject to contract between the partners, the property of the firm includes all property and rights and interests in property originally brought into the stock of the firm, or acquired, by purchase or otherwise, by or for the firm, or for the purposes and in the course of the business of the firm, and includes also the goodwill of the business. It is also clarified that unless the contrary intention appears, property and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of section 32 deal with the consequences of retirement while sections 36 and 37 speak about the rights of an outgoing partner to carry on competing business and in certain cases to share subsequent profits. Chapter VI deals with the dissolution of a firm. Section 40 provides that a firm may be dissolved with the consent of all the partners or in accordance with the contract between the partners. Sections 41 and 42 deal with dissolution on the happening of certain events while section 43 permits a partner to dissolve a firm by notice if it is a partnership at will. Section 44 speaks of dissolution through court. Section 48 indicates the mode of settlement of accounts between the partners on dissolution while section 49 posits that where there are joint debts due from the firm, and also separate debts due from any partner, the property of the firm shall be applied in the first instance in payment of the debts of the firm, and, if there is any surplus, then the share of each partner shall be applied in payment of his separate debts or paid to him. The separate property of any partner shall be applied first in the payment of his separate debts, and the surplus (if any) in the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicates that he was quite satisfied with the hearing given by the arbitrators. He was also by and large satisfied with the proposed award but thought it warranted certain adjustments to make it acceptable and rational. He was of the view that the award should provide for the reallocation of the shareholding of Madras Vanaspati Ltd., whereas Brahmaskthi Tin Factory owned by his sons should be kept out of the purview of the arbitrators since it was not the subject-matter of arbitration. Then he raised some objection as to the percentage of his share and the amount found due to him. In the subsequent letter written on September 9, 1983, he has reiterated these very objections while raising certain questions regarding valuation of partnership properties. Even in the application filed under sections 30 and 33 of the Arbitration Act in the High Court the objections to the award as enumerated in paragraph 15 mainly concerned (i) the conduct of the arbitrators who, it is alleged, acted negligently, with bias and against principles of natural justice, (ii) deliberate acts in leaving out certain properties from consideration, e.g., shareholdings of Madras Vanaspati Ltd., stock-in-trade and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision there is no dispute. The question which requires determination is whether on the dissolution of the partnership the distribution of the assets of the firm comprising both movable and immovable properties after meeting its obligations on settlement of accounts amongst the partners of the firm in proportion to their respective shares amounts to a partition of immovable properties or a relinquishment or extinguishment of a share in immovable property requiring registration under section 17 of the Registration Act if the allocation includes immovable property of the value of Rs. 100 and above? In other words, the question to be considered is whether the interest of a partner in partnership assets is to be treated as movable property or both movable and immovable depending on the character of the property for the purposes of section 17 of the Registration Act? This question has been the subject-matter of decision in a few cases. In Addanki Narayanappa v. Bhaskara Krishnappa [1966] AIR 1966 SC 1300 ; [1966] 3 SCR 400, the members of two joint Hindu families, the Addanki family and the Bhaskara family, had entered into partnership for carrying on business of hulling rice, etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... movable property and the document recorded relinquishment by the members of the Addanki family of their interest therein which exceeded Rs. 100 in value, the document required registration under section 17(1)(c) of the Registration Act. After referring to the provisions of law, treatise and the case-law, both of English and Indian courts, this court reproduced the following passage from the decision in Ajudhia Pershad Ram Pershad v. Sham Sunder, AIR 1947 Lah 13 [FB] with approval (at page 1306 of AIR 1966 SC) : "These sections require that the debts and liabilities should first be met out of the firm property and thereafter the assets should be applied in rateable payment to each partner of what is due to him firstly on account of advances as distinguished from capital and, secondly, on account of capital, the residue, if any, being divided rateably among all the partners. It is obvious that the Act contemplates complete liquidation of the assets of the partnership as a preliminary to the settlement of accounts between partners upon dissolution of the firm and it will, therefore, be correct to say that, for the purposes of the Indian Partnership Act, and, irrespective of any mutu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solved and on dissolution it was agreed between the partners that the theatres should be returned to their original owners who had brought them into the books of the partnership as its assets. In the books of account of the partnership, the assets were shown as taken over on October 1, 1951, at the original price less depreciation, the depreciation being equally divided between the two partners. In the proceedings for the assessment year 1952-53, the firm was treated as a registered firm. The Appellate Tribunal held that restoration of the two theatres to the original owners amounted to transfer by the firm and the entries adjusting the depreciation and writing off of the assets at the original value amounted to total recoupment of the entire depreciation by the partnership and on that account the second Proviso to section 10(2)(vii) of the Indian Income-tax Act, 1922, applied. The High Court in reference upturned the decision of the Tribunal and held in favour of the assessee against which the Revenue appealed to this court. This court after referring to sections 46 and 48 of the Partnership Act held that on the dissolution of the partnership each theatre must be deemed to be retu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsfer" in section 2(47) of the Act and the case law on the point concluded as under : "Having regard to the above discussion, it seems to us clear that a partnership firm under the Indian Partnership Act, 1932, is not a distinct legal entity apart from the partners constituting it and equally in law the firm as such has no separate rights of its own in the partnership assets and when one talks of the firm's property or firm's assets all that is meant is property or assets in which all partners have a joint or common interest. If that be the position, it is difficult to accept the contention that upon dissolution the firm's rights in the partnership assets are extinguished. The firm as such has no separate rights of its own in the partnership assets but it is the partners who own jointly in common the assets of the partnership and, therefore, the consequence of the distribution, division or allotment of assets to the partners which flows upon dissolution after discharge of liabilities is nothing but a mutual adjustment of rights between the partners and there is no question of any extinguishment of the firm's rights in the partnership assets amounting to a transfer of assets withi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st in each and every property of the firm and it is not possible to say unless the accounts are settled and the residue or surplus determined what would be the extent of the interest of each partner in the property. It is, however, clear that since no partner can claim a definite or earmarked interest in one or all of the properties of the firm because the interest is a fluctuating one depending on various factors, such as, the losses incurred by the firm, the advances made by the partners as distinguished from the capital brought in the firm, etc., it cannot be said, unless the accounts are settled in the manner indicated by section 48 of the Partnership Act, what would be the residue which would ultimately be allocable to the partners. In that residue, which becomes divisible among the partners, every partner has an interest and when a particular property is allocated to a partner in proportion to his share in the profits of the firm, there is no partition or transfer taking place nor is there any extinguishment of interest of other partners in the allocated property in the sense of a transfer or extinguishment of interest under section 17 of the Registration Act. Therefore, view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he share of a partner in the assets of the partnership comprising even immovable properties, is movable property and the assignment of the share does not require registration under section 17 of the Registration Act. The legal position is thus affirmed. However, since the award did not seek to assign the share of the respondent to the appellant but on the contrary made an exclusive allotment of the partnership asset including the factory and liabilities to the appellant, thereby creating an absolute interest on payment of consideration of Rs. 17,000 plus half the amount of the realisable debts, it was held to be compulsorily registrable under section 17 of the Registration Act, The court did not depart from the principle that the share of a partner in the asset of the partnership inclusive of immovable properties, is movable property and the assignment of the share on dissolution of the partnership did not require registration under section 17 of the Registration Act. The decision, therefore. turned on the interpretation of the award in regard to the nature of the assignment made in favour of the appellant. So far as the second case is concerned, we think it has no bearing since th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s had confined themselves to the properties belonging to the two firms in question and scrupulously avoided dealing with properties not belonging to the firm. This is manifest from paragraphs 15 to 18 of the award. However, properties standing in the names of disputants, individually or jointly, and others as benamidars but belonging to the firm also came to be included in the distribution of the surplus partnership assets under the award. That is the purport of paragraph 10(c) extracted hereinabove. When on settlement of accounts the residue is required to be divided among the partners in the proportions in which they were entitled to share profits under sub-clause (iv) of clause (b) of section 48, the properties will have to be allocated to the partners as falling to their share on the distribution of the residue and, therefore, the arbitrators indicated in the schedules the properties falling to the share of each brother. Mere statements that a certain property will now exclusively belong to one partner or the other, as the case may be, cannot change the character of the document or the nature of assignment because that would in any case be the effect of the distribution of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
